In the highly anticipated budget speech, Finance Minister Nirmala Sitharaman covered a wide array of topics, from fiscal policies to new reforms. However, several crucial changes in the Goods and Services Tax (GST) regime, which will significantly impact businesses and taxpayers, were not explicitly mentioned. Here, we delve into these key changes proposed in the Finance Bill 2024, shedding light on the amendments that might have flown under the radar.
Significant Changes in GST
1. Exclusion of Extra Neutral Alcohol from GST
Amendment of Section 9 of the CGST Act: One of the notable changes is the amendment to Section 9, which excludes un-denatured extra neutral alcohol or rectified spirit used for the manufacture of alcoholic liquor for human consumption from the purview of GST. This aligns with similar amendments in the IGST and UTGST Acts, providing clarity and consistency across the GST framework.
2. New Section 11A: Non-Recovery of GST Based on General Practice
Insertion of Section 11A: A new section empowers the government to waive the recovery of GST not levied or short-levied due to a generally prevalent practice in trade. This provision aims to regularize past practices and provide relief to businesses that followed industry norms, even if those norms were not strictly compliant with the tax law.
3. Time of Supply for Reverse Charge
Amendment of Section 13: Changes in Section 13 address the time of supply for services where the invoice is required to be issued by the recipient in reverse charge situations. This amendment ensures clarity in cases of reverse charge mechanisms, specifying the date of issue of the invoice by the recipient as the relevant date.
4. Input Tax Credit (ITC) for Past Financial Years
Amendment of Section 16: The insertion of sub-sections (5) and (6) in Section 16 provides exceptions to the existing rules, allowing registered persons to avail ITC for past financial years (2017-18 to 2020-21) under specific conditions. This retrospective amendment offers significant relief to businesses by extending the timeline for availing ITC.
5. Conditional Waiver of Interest and Penalty
Insertion of Section 128A: A new section introduces a conditional waiver of interest and penalty for demands raised under Section 73 for the financial years 2017-18 to 2019-20, provided the taxpayer pays the full amount of tax due. This offers a significant opportunity for taxpayers to settle past disputes without additional financial burden.
6. Transitional Credit for Input Services
Amendment of Section 140: The amendment allows for the availment of transitional credit for input services received by an Input Services Distributor before the appointed day, whether the invoices were received prior to, on, or after the appointed day. This change, effective from July 1, 2017, addresses transitional credit issues that businesses faced during the GST rollout.
7. Anti-Profiteering Measures
Amendment of Section 171: The insertion of a proviso and explanation in Section 171 empowers the government to specify the date from which the Authority will not accept applications for anti-profiteering cases. It also includes the Appellate Tribunal within the Authority, streamlining the anti-profiteering measures.
8. New Schedule III Activities
Amendment of Schedule III: New paragraphs in Schedule III clarify that the activity of apportionment of co-insurance premium by the lead insurer to the co-insurer and services by the insurer to the reinsurer will be treated as neither supply of goods nor services, provided certain conditions are met. This amendment ensures clarity in the insurance sector regarding tax liabilities.
A Detailed Look at Section 74A: A Game Changer
Introduction of Section 74A
Insertion of Section 74A: One of the most significant changes is the introduction of Section 74A, which deals with the determination of tax not paid or short paid, erroneously refunded, or input tax credit (ITC) wrongly availed or utilized for any reason from the Financial Year 2024-25 onwards.
Key Features of Section 74A
Aspect | Non-Fraud Cases | Fraud Cases |
Issuance of Notice (74A(1)) | Issued if tax not paid, short paid, erroneously refunded, or ITC wrongly availed/utilized for reasons other than fraud. | Issued if tax not paid, short paid, erroneously refunded, or ITC wrongly availed/utilized due to fraud, willful misstatement, or suppression of facts. |
Time Limit for Issuance of Notice (74A(2)) | Issued within 42 months from the due date of filing the annual return or from the date of erroneous refund. | Issued within 42 months from the due date of filing the annual return or from the date of erroneous refund. |
Issuance of Statement (74A(3)) | The proper officer may serve a statement containing details of tax discrepancies for periods not covered under the original notice. | The proper officer may serve a statement containing details of tax discrepancies for periods not covered under the original notice. |
Condition for Deemed Notice (74A(4)) | Grounds for discrepancies in the statement must be the same as those in the original notice. | Grounds for discrepancies in the statement must be the same as those in the original notice. |
Penalty (74A(5)) | 10% of the tax due or Rs. 10,000, whichever is higher. | Equivalent to the tax due from such person. |
Issuance of Order (74A(6)) | The proper officer, after considering the representation made by the person, shall determine the amount of tax, interest, and penalty due and issue an order. | The proper officer, after considering the representation made by the person, shall determine the amount of tax, interest, and penalty due and issue an order. |
Time Limit for Issuance of Order (74A(7)) | Issued within 12 months from the date of issuance of notice, extendable by 6 months with approval. | Issued within 12 months from the date of issuance of notice, extendable by 6 months with approval. |
Voluntary Payment Before SCN (74A(8)(i)) | No penalty if tax and interest are paid voluntarily before the issuance of SCN. | 15% penalty if tax, interest, and a 15% penalty are paid before the issuance of SCN. |
Voluntary Payment After SCN (74A(8)(ii)) | No penalty if tax and interest are paid within 60 days of the SCN. | 25% penalty if tax, interest, and a 25% penalty are paid within 60 days of the SCN. |
Payment After Order (74A(9)(iii)) | Not explicitly covered. | 50% penalty if tax, interest, and a 50% penalty are paid within 60 days of the order. |
Shortfall in Payment (74A(10)) | If the amount paid is short of the actual amount payable, the proper officer will issue a notice for the shortfall amount. | If the amount paid is short of the actual amount payable, the proper officer will issue a notice for the shortfall amount. |
Self-Assessed Tax Penalty (74A(11)) | Penalty will be levied if any self-assessed tax or collected tax is not paid within 30 days from the due date. | Penalty will be levied if any self-assessed tax or collected tax is not paid within 30 days from the due date. |
Applicability (74A(12)) | Applicable for determination of tax from the financial year 2024-25 onwards. | Applicable for determination of tax from the financial year 2024-25 onwards. |
Explanation 1 | “All proceedings in respect of the said notice” do not include proceedings under Section 132. | “All proceedings in respect of the said notice” do not include proceedings under Section 132. |
Explanation 2 | “Suppression” includes non-declaration of required information or failure to furnish information when asked by the proper officer. | “Suppression” includes non-declaration of required information or failure to furnish information when asked by the proper officer. |
Comparison with Sections 73 and 74
Non-Fraud Cases: Proposed Section 74A
Aspect | Detail (74A) | Comparison with Existing Law (Section 73) |
Issuance of Notice (74A(1)) | Issued if tax not paid, short paid, erroneously refunded, or ITC wrongly availed/utilized for reasons other than fraud. No notice if the amount involved is less than Rs. 1,000. | Similar to Section 73 but with a new threshold of Rs. 1,000 below which no notice will be issued. |
Time Limit for Issuance of Notice (74A(2)) | Issued within 42 months from the due date of filing the annual return or from the date of erroneous refund. | Current law allows issuance within 3 years from the due date of filing the annual return. |
Issuance of Statement (74A(3)) | The proper officer may serve a statement containing details of tax discrepancies for periods not covered under the original notice. | Similar provision exists in Section 73, where a statement can be served for other periods. |
Condition for Deemed Notice (74A(4)) | Grounds for discrepancies in the statement must be the same as those in the original notice. | Same as the current provision under Section 73. |
Penalty (74A(5)(i)) | 10% of the tax due or Rs. 10,000, whichever is higher. | Penalty in Section 73 is 10% of tax or Rs. 10,000, whichever is higher, if payment is made after 30 days of the order. |
Issuance of Order (74A(6)) | The proper officer, after considering the representation made by the person, shall determine the amount of tax, interest, and penalty due and issue an order. | Similar to the current law under Section 73. |
Time Limit for Issuance of Order (74A(7)) | Issued within 12 months from the date of issuance of notice, extendable by 6 months with approval. | Current law under Section 73 requires the order to be issued within 3 years from the due date of the annual return. |
Voluntary Payment Before SCN (74A(8)(i)) | No penalty if tax and interest are paid voluntarily before the issuance of SCN. | Similar to Section 73 where no penalty is imposed if payment is made voluntarily before SCN. |
Voluntary Payment After SCN (74A(8)(ii)) | No penalty if tax and interest are paid within 60 days of the SCN. | In Section 73, no penalty is imposed if payment is made within 30 days of the SCN. |
Shortfall in Payment (74A(10)) | If the amount paid is short of the actual amount payable, the proper officer will issue a notice for the shortfall amount. | Similar provision exists under Section 73. |
Self-Assessed Tax Penalty (74A(11)) | Penalty will be levied if any self-assessed tax or collected tax is not paid within 30 days from the due date. | Section 73 does not have a specific clause for self-assessed tax penalties, this is a new addition in Section 74A. |
Applicability (74A(12)) | Applicable for determination of tax from the financial year 2024-25 onwards. | Section 73 applies to all previous financial years. |
Explanation 1 | “All proceedings in respect of the said notice” do not include proceedings under Section 132. | Similar provision exists under Section 73. |
Explanation 2 | “Suppression” includes non-declaration of required information or failure to furnish information when asked by the proper officer. | Similar definition of “suppression” under Section 73. |
Fraud Cases: Proposed Section 74A
Aspect | Detail (74A) | Comparison with Existing Law (Section 74) |
Issuance of Notice (74A(1)) | Issued if tax not paid, short paid, erroneously refunded, or ITC wrongly availed/utilized due to fraud, willful misstatement, or suppression of facts. No notice if the amount involved is less than Rs. 1,000. | Similar to Section 74 but with a new threshold of Rs. 1,000 below which no notice will be issued. |
Time Limit for Issuance of Notice (74A(2)) | Issued within 42 months from the due date of filing the annual return or from the date of erroneous refund. | Current law allows issuance within 5 years from the due date of filing the annual return. |
Issuance of Statement (74A(3)) | The proper officer may serve a statement containing details of tax discrepancies for periods not covered under the original notice. | Similar provision exists in Section 74, where a statement can be served for other periods. |
Condition for Deemed Notice (74A(4)) | Grounds for discrepancies in the statement must be the same as those in the original notice. | Same as the current provision under Section 74. |
Penalty (74A(5)(ii)) | Equivalent to the tax due from such person. | Penalty under Section 74 is equivalent to the tax due. |
Issuance of Order (74A(6)) | The proper officer, after considering the representation made by the person, shall determine the amount of tax, interest, and penalty due and issue an order. | Similar to the current law under Section 74. |
Time Limit for Issuance of Order (74A(7)) | Issued within 12 months from the date of issuance of notice, extendable by 6 months with approval. | Current law under Section 74 requires the order to be issued within 5 years from the due date of the annual return. |
Voluntary Payment Before SCN (74A(9)(i)) | 15% penalty if tax, interest, and a 15% penalty are paid before the issuance of SCN. | Similar to Section 74 where a 15% penalty is imposed if payment is made before SCN. |
Voluntary Payment After SCN (74A(9)(ii)) | 25% penalty if tax, interest, and a 25% penalty are paid within 60 days of the SCN. | In Section 74, a 25% penalty is imposed if payment is made within 30 days of the SCN. |
Payment After Order (74A(9)(iii)) | 50% penalty if tax, interest, and a 50% penalty are paid within 60 days of the order. | In Section 74, a 50% penalty is imposed if payment is made within 30 days of the order. |
Shortfall in Payment (74A(10)) | If the amount paid is short of the actual amount payable, the proper officer will issue a notice for the shortfall amount. | Similar provision exists under Section 74. |
Self-Assessed Tax Penalty (74A(11)) | Penalty will be levied if any self-assessed tax or collected tax is not paid within 30 days from the due date. | Section 74 does not have a specific clause for self-assessed tax penalties, this is a new addition in Section 74A. |
Applicability (74A(12)) | Applicable for determination of tax from the financial year 2024-25 onwards. | Section 74 applies to all previous financial years. |
Explanation 1 | “All proceedings in respect of the said notice” do not include proceedings under Section 132. | Similar provision exists under Section 74. |
Explanation 2 | “Suppression” includes non-declaration of required information or failure to furnish information when asked by the proper officer. | Similar definition of “suppression” under Section 74. |
Improvements with Section 74A
- Unified Approach: Section 74A consolidates the approach for dealing with discrepancies irrespective of fraud, simplifying the procedural aspects.
- Clearer Timeframes: The 42-month period for issuing notices provides a definitive timeline, enhancing certainty for taxpayers.
- Proportional Penalties: The distinction between general errors and fraud ensures proportionality in penalties, promoting fairness.
- Encouragement of Early Settlement: Provisions for reduced penalties for early settlements incentivize taxpayers to resolve issues promptly, reducing litigation.
Example of Due Date for Issuing Notice
In the context of the GST regime in India, the due date for furnishing the final annual return (GSTR-9) for a financial year is typically the 31st of December following the end of that financial year. However, this due date can be extended by the government through notifications.
Let’s use a specific financial year as an example:
Financial Year: 2024-25
- End of Financial Year: 31st March 2025
- Due Date for Annual Return (GSTR-9): 31st December 2025
According to Section 74A(2), the proper officer shall issue the notice within forty-two months from the due date for furnishing the annual return.
Calculation of the 42-Month Period
Starting from the due date of 31st December 2025:
- January 2026 to December 2026: 12 months
- January 2027 to December 2027: 12 months
- January 2028 to December 2028: 12 months
- January 2029 to June 2029: 6 months
So, the period of 42 months from 31st December 2025 would end on 30th June 2029.
Example Timeline
- Financial Year 2024-25: 1st April 2024 to 31st March 2025
- Due Date for Filing Annual Return: 31st December 2025
- Last Date to Issue Notice for Tax Discrepancies for FY 2024-25: 30th June 2029
This means that for the financial year 2024-25, the proper officer has until 30th June 2029 to issue a notice for any tax discrepancies for FY 2024-25.
Conclusion
While the Finance Minister’s budget speech focused on broader economic policies and reforms, these crucial changes in the GST regime are poised to have a substantial impact on businesses and taxpayers. From the introduction of Section 74A to the amendments enhancing clarity and compliance, these changes reflect the government’s ongoing efforts to refine and streamline the GST framework. Staying informed about these amendments is essential for businesses to navigate the evolving tax landscape effectively.
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